Stephen Miran’s Vision: How His Leadership at the CEA Could Reshape U.S. Trade Policy

Hardik Shah
Mar 13, 2025
5 min read

TL;DR

Dollar Overvaluation Drives Trade Imbalances: The persistent strength of the U.S. dollar due to reserve asset demand weakens American manufacturing competitiveness and increases trade deficits.
Tariffs and Currency Adjustments Are Policy Tools: Strategic use of tariffs and currency interventions can help rebalance trade without causing inflation, but they must be carefully implemented.
Global Economic and Security Implications: Any changes to trade and financial policy will impact international alliances, financial markets, and the U.S. role as a reserve currency provider.

Introduction

Stephen Miran, recently confirmed as the Chairman of the Council of Economic Advisors, has long been an advocate for understanding the economic consequences of trade and currency policies. This article is based on his 2024 white paper, which explored the structural imbalances in global trade and financial systems, particularly the impact of an overvalued U.S. dollar on American industry.

The global trading system is on the brink of significant transformation, spurred by persistent economic imbalances and calls for reform. A key challenge is the overvaluation of the U.S. dollar, which distorts international trade and burdens American industries, particularly manufacturing. As the U.S. reassesses its role in global finance, policymakers are exploring a range of tools, including tariffs and currency adjustments, to restore balance.

This article examines these policy tools, their potential tradeoffs, and the financial market consequences of restructuring global trade. It is not a policy advocacy piece but an analysis of economic realities and feasible pathways for change.

The Problem: Persistent Dollar Overvaluation and Its Consequences

The core economic imbalance stems from the inelastic demand for U.S. reserve assets, which drives up the value of the dollar. As a result:

U.S. exports become less competitive, leading to trade deficits and the erosion of domestic manufacturing.
The U.S. bears disproportionate financial burdens, providing global liquidity and security at the expense of its tradeable sectors.
Economic dislocation occurs, particularly in industrial regions affected by trade imbalances, contributing to long-term economic stagnation.

Historically, the U.S. has relied on multilateral currency arrangements to address misalignment. However, unilateral measures may also be available to correct undervaluation and support American industry.

Policy Tools for Reshaping Trade and Financial Systems

Tariffs: Revenue Generation and National Security Considerations

Tariffs serve multiple functions beyond restricting imports:

Revenue Generation: If tariffs are offset by currency adjustments, they can fund government initiatives with minimal inflationary impact.
National Security Alignment: Trade barriers can be strategically implemented to strengthen security-related industries.
Case Study: 2018-2019 Tariffs: Previous tariff implementations resulted in limited macroeconomic consequences, as currency adjustments absorbed most of the effects.
Optimal Tariff Structures: Determining the right tariff rates within the broader U.S. tax system is critical to ensuring effectiveness without excessive economic distortions.

Currency Adjustments: Unilateral and Multilateral Approaches

Currency policy represents another avenue for rebalancing trade:

Multilateral Agreements: Historically favored, but often slow-moving and subject to international negotiation hurdles.
Unilateral Actions: Contrary to popular belief, the U.S. possesses tools to independently influence currency valuation, such as reserve accumulation strategies.
Tradeoffs: Currency intervention can stabilize trade but may introduce financial market volatility.

Discussing the impact of tariffs on currency valuation, he noted that "because tariffs are USD-positive, it will be important for investors to understand the sequencing of reforms to the international trading system."

Tradeoffs and Mitigation Strategies

Each policy tool carries inherent risks and requires strategic implementation:

Inflation Considerations: Tariffs can be inflation-neutral if currency adjustments counteract price effects, but poor implementation may exacerbate costs.
Market Volatility: Currency interventions and sudden tariff changes can destabilize financial markets, necessitating phased implementations.
Economic Retaliation: Trade partners may respond with countermeasures, affecting global supply chains and long-term competitiveness.

Addressing concerns about consumer costs, Miran observed that "American consumers' purchasing power isn't affected, since the tariff and the currency move cancel each other out."

A gradual, predictable approach to policy changes can help mitigate unintended consequences while achieving strategic objectives.

Broader Implications for Global Trade and Finance

Reshaping U.S. trade policy will inevitably have ripple effects across the global economy:

Realignment of Global Trade Partnerships: Countries may shift alliances based on new trade terms.
Impact on U.S. Treasury Securities: Changes in reserve asset demand could alter global financial flows and U.S. borrowing costs.
Long-Term Shift in Reserve Currency Dynamics: While the dollar remains dominant, increased burden-sharing may redefine its role in international finance.

Our Opinion

Consumer sector companies, including retailers, manufacturers, and CPG firms, will experience shifts in trade costs, supply chain dynamics, and consumer purchasing behavior. Tariffs on imports could lead to higher input costs for businesses relying on foreign suppliers, with currency adjustments providing partial offsets but also introducing forex market uncertainties. As a result, companies may need to restructure supply chains by diversifying suppliers or moving production to tariff-favorable locations, though these changes could require significant capital investments. Additionally, if higher costs are passed to consumers, discretionary spending may decline, though domestic job creation from reshoring efforts could bolster consumer purchasing power in the long run.

The implementation of tariffs and currency adjustments presents several risks, particularly margin compression for companies dependent on low-cost imports. Retailers with thin profit margins, such as discount stores and big-box chains, may feel immediate financial pressure, while global companies could face increased hedging costs due to exchange rate volatility. Trade retaliation remains a key risk, as other countries may impose counter-tariffs that hinder U.S. consumer brands seeking to expand or maintain their international presence. Additionally, shifting trade policies may bring new compliance burdens, affecting regulations on product labeling, certifications, and import/export requirements, particularly for industries with significant foreign direct investment in sensitive sectors like food safety, pharmaceuticals, and technology.

Despite the risks, these policy changes could offer opportunities for U.S. manufacturers and brands. Strengthening domestic production could provide cost advantages over competitors reliant on imports, while increased employment may support consumer spending, benefiting premium brands and services. "Made in America" branding could also become a competitive differentiator, as consumers may increasingly favor domestically produced goods for perceived quality and ethical reasons. Additionally, U.S. brands may benefit from improved trade agreements that lower foreign market barriers, creating new opportunities for expansion. Supplier relationships could also evolve, allowing companies to negotiate better terms as suppliers adjust to the changing trade landscape.

The current structure of the global trading system presents clear economic challenges that warrant policy action. Tariffs and currency adjustments offer viable mechanisms for rebalancing trade, but their implementation must be carefully managed to avoid excessive market disruption. As the U.S. moves toward a potential restructuring of trade and financial policies, the interplay between economic competitiveness and geopolitical strategy will be crucial. The ultimate goal should be a balanced approach that fosters sustainable growth, strengthens national security, and ensures fair participation in the global economy.

About Stephen Miran

Stephen Miran is an economist and financial strategist who was recently confirmed as the Chairman of the Council of Economic Advisors. Prior to this role, he served as a Senior Strategist at Hudson Bay Capital and as a Senior Advisor for Economic Policy at the U.S. Department of the Treasury. Miran holds a Ph.D. in Economics from Harvard University and has extensively analyzed trade, monetary policy, and financial markets. His insights on economic imbalances and trade restructuring continue to shape high-level policy discussions in Washington.